Elderly can milk a cash cow Home equity can be turned into monthly income for many.

A 95-year-old widow with no relatives has $1.10 a month left over after she pays her bills, including hundreds for prescription medicines.

* An arthritic 69-year-old woman can no longer clean houses and rest rooms to help pay expenses for her two institutionalized adult retarded children.

* An 86-year-old man who had to borrow against his house and now can't afford the monthly payments faces foreclosure.

Like many other elderly people, these area residents are in desperate financial straits although they are sitting on potential cash cows -- their houses.

Up to now they have had no way to milk them without either selling or -- if they qualified -- taking on a loan or mortgage that required them to make a monthly payment that they may not have been able to afford.

But these homeowners will soon receive financial relief.

They are among the first batch who will benefit from a greatly expanded government program that is making a hitherto little-used financial instrument widely available.

Called a reverse mortgage, it allows homeowners to convert their home equity -- the home's value minus any debt owed on it -- into retirement income without any repayment until they either move or they die.

During that time, the homeowner retains ownership of the house.

When he moves, he can sell the house to pay off the mortgage. If he dies, his estate can either sell the house to pay off the debt or use other assets.

Up to now, few lenders have offered reverse mortgages, few elderly have known about them and little advice has been available from financial professionals.

But RMs -- essentially a loan made in advance against the value of a house -- are expected to gain popularity as the Federal Housing Administration's greatly expanded Home Equity Conversion Mortgage (HECM) Insurance Program gears up.

An earlier FHA pilot program allocated reverse mortgages only for 2,500 units -- just 50 per state, allowing only a few lenders to participate -- and only a fraction of those mortgages have been written. The expanded program is available to 10,000 FHA-approved lenders nationwide.

The FHA program is designed to make the program attractive to lenders by removing obstacles to making the loans. Under it, the government insures the loan and the Federal National Mortgage Association (Fannie Mae) provides funding by buying the mortgage on the secondary market. A subcontractor, Wendover Funding, a North Carolina company, can service the loan.

"That's the key -- to promote the program to get lenders involved," says Gerry Glavey, an insured housing specialist in HUD's regional office in Philadelphia.

Currently, only one local lender -- International Mortgage Corp. of Pikesville -- is making the loans in Maryland under the FHA program; it got involved at HUD's request, according to president George Conover.

Conover, who outlined the plights of the homeowners described above, says these people are scheduled to close on their reverse mortgages this month. Snafus in getting sufficient information from HUD and the lack of counselors trained in home equity conversions have delayed the process for months, he says.

"I think we have $70,000 invested and we haven't seen a dime yet," he says, adding that he doesn't expect the program to be a money-maker.

But the hardship stories of people who have applied underline its importance, he adds.

"It makes you feel, 'Gee whiz, I really have to do something to helpthese old people.' It's a program that's sorely needed. We're going to stick with it."

The 95-year-old widow, for instance, will find her income boosted by $1,000 a month.

"She said, 'Oh my goodness, I don't need that much money. I only need a couple of hundred dollars a month,' " Conover relates. "But she's going to get it."

Conover says a person needs only about $350 cash to close the mortgage because the other costs can be financed.

Conventional reverse mortgages also are available, but apparently are not being offered by any area institutions, according to the Maryland Mortgage Banker Association. Capital Holding Corp. of Louisville, however, does offer reverse mortgages in Maryland, one of its sites for a market test in 1988.

Reverse mortgages are available to homeowners 62 and older. There are no income or asset requirements or limitations, and no restrictions on how the money can be used. The amount of money received is based on the home's value, the borrower's age and life expectancy, and the loan's expected interest rate.

There are three options for receiving payments, which actually are loan advances. Homeowners can choose fixed monthly payments, either for a specified term or for as long as they live in the house; a lump sum or a line of credit. Combinations, such as a lump sum at the outset and then monthly payments or monthly payment plus a reserve line of credit, also are possible. Homeowners also can change the payment option at any time during the mortgage's life.

Both FHA and Capital Holding loans don't have to be repaid for aslong as the homeowner lives in the house. And both are non-recourse loans, which means the amount owed can never exceed the value of the house, even if the homeowner ends up receiving more than can be recovered when it's sold.

Any equity left over at the time of repayment goes to the homeowner or his heirs unless he has agreed to share any gain in the home's value with the lender in exchange for higher monthly payments. While FHA offers a shared appreciation option, no one has chosen it so far. Capital Holding does not share in any rise in the home's value.